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   Vol. 16 No. 62
Thursday August 3, 2017

Final Countdown For Air India
Final Countdown For Air India

     As the government prepares for the final countdown of the Air India sale slated for the end of March 2018—the national carrier is burdened with a massive debt of Rs 50,000 crore ($751.6 mn)—the move has raised the hackles of the carrier’s unions.

Letter To Minister

Ashok Gajapati Raju      A letter to the Civil Aviation Minister Ashok Gajapathi Raju (left) dated June 14, 2017, from a forum of seven unions—AI Air Corporate Employees’ Union, AI Employees’ Union, AI Aircraft Engineers’ Association, United Air India Officers’ Association, AI Engineers’ Association, AI Cabin Crew Association, and AI Service Engineers’ Association—predicts “massive protests” if the government moves ahead with the NITI Aayog’s (the National Institution for Transforming India, the premier policy ‘Think Tank’ of the government) suggestion to sell off the national carrier.
      It is no surprise the unions are worried (to say the least) that there could be job losses if a private entity buys the carrier.
       The letter to the minister said:
      “We urge you not to accept the hurried recommendations by the Niti Aayog, and not to force the employees of Air India to agitate which will lead to industrial unrest and disharmony.”

Losses Trimmed PAX Business Up

      Pointing out that the government’s move would mean the death of the 64-year-old national carrier, the letter went on to state that the sale had come at a time when it was “showing all-round progress, profitability and over 33 percent increase in the numbers of passengers.”
      A few days ago, in fact, the airline reported that it expected an operating profit close to Rs 300 crore ($45 mn) for FY17, up from Rs 105 crore ($16 mn) in 2015-16. Air India has said that it increased core revenue, ancillary income, and operating ratio in 2016-17 while trimming losses.
      An Air India executive was quoted saying the carrier had improved its load factor to 76.4 percent from 75 percent last year. “This may seem marginal, but consider the huge capacity deployment by private carriers on domestic routes,” he said.

Private Sector Mouthpiece?

J B Kadyan      Squarely blaming the Niti Aayog for being a “spokesperson of the private sector,” the unions’ missive said that the body was acting “unilaterally, arbitrarily, and illegally” and had not sought the views of the stakeholders in the sale move.
      J. B. Kadyan, Secretary General, ACEU (Air Corporation Employees Union), speaking to a media outlet, said that the unions would first approach the government to stop the sale but “if they don’t listen to us, we will agitate.” Kadyan also said that Niti Aayog CEO Amitabh Kant had not even evaluated Air India’s assets before filing his report.
      He also alleged that Kant had written his report “sitting in a room” in 15 days. Kadyan also emphasized: “We are not responsible for the mess of Air India, government policies are.”
Amitabh Kant      Kant, (left)on his part, justified the move.
      He said: “We did a recommendation on Air India in just 15 days’ time, it was very clear from its analysis and statistics of its financial performance that it will do better if you structure it with a private partner.”
      The Niti Aayog CEO also said it was the Aayog member’s belief that “government is very good at some things and pathetic at other things.
      “It should get out of areas where it’s very bad and it should take out resources which are not in productive area.
      “There is no rationale of government to put money into an airline which is just taking 14 percent of market share.
      “Private sector has done pretty well and our analysis showed that the resources required are huge and need to be put in education and health.”

The Long & Winding Road

      The Air India sale story has seen many twists and turns. The carrier has received financial infusions from the government and worked out plans for a turnaround, but nothing has helped.             However, over the last fortnight, the government has adopted a fast-forward mode with the Civil Aviation Ministry preparing a Cabinet note that would decide the future action for the debt-ridden national carrier, including possible privatization.
Arun Jaitley      In fact, Union Finance Minister Arun Jaitley stated that the government was in favor of completely exiting Air India if a suitable investor was available.
      He said that if 84 percent of the aviation market could be run by private airlines there was “no reason why it cannot go to 100 percent.”
      Reports also confirmed that the government decided for the sale of Air India in one go.
      In a single stroke, the government would cede control by reducing its stake to either below 49 percent, or exit the national carrier completely.
      A senior government official was quoted saying that “no investor, domestic or foreign, will be interested in buying a minority stake in Air India.
      “There won’t be a 10, 15, 20 percent stake sale.
      “It has to be privatization at one go.
      “The decision is whether the government will bring down its ownership to below 49 percent or exit altogether.”

Major Write-off In The Wings

      Meanwhile, the Cabinet note mentioned that the government had decided to write off almost half of the carrier’s estimated liabilities of Rs 60,000 crore ($9019 mn). “While the write-off is of the carrier’s liabilities not backed by assets, the government might also incur an expenditure for the settlement of the sovereign-backed part of AI’s aircraft loan of about Rs 21,000 crore ($3156 mn),” the official pointed out.

Let’s Make A Deal

      Apparently those who lent to the carrier have reportedly had “informal talks with the government” and expressed their willingness to negotiate Air India’s loan settlement, including the re-setting of interest rates. Incidentally, according to a rough estimate by the Civil Aviation Ministry, the Maharaja’s assets—including its 115-strong aircraft fleet, land parcels, buildings, flying/landing rights, and parking slots at airports across the world—“are worth around Rs 25,000-30,000 crore ($3758 mn - $4509 mn).”

Of The Minority?

      One of the major issues the government will have to resolve is of holding a minority stake in the carrier.
      While the government has made it clear it’s unlikely a foreign investor will be allowed to participate in the privatization process, it cannot stop foreign airlines from picking up stakes because the present Foreign Direct Investment (FDI) rules allow foreign airlines to buy up to 49 percent stake in Indian airlines.

Singh A Song Of Air India?

Ajay Singh      The rule—along with a recent interview with SpiceJet Chairman Ajay Singh—has given rise to widespread belief that SpiceJet could be one of the buyers of Air India if it is put up for sale.
      In an interview to the daily Times of India at the end of May this year, in replying to whether Air India would be a good buy for anyone if the government put it on the block, Singh said that though AI had immense value, “it has a massive mountain of debt.
      “The debt,” Mr. Singh declared “(almost Rs 50,000 crore or $7516 mn) makes it completely unviable.
      “There is a massive working capital debt, which is very difficult to repay.
      “In its current form, it does not appear to be a viable proposition.”
      As to whether such a buy would be feasible if the government took on a large part of the debt, the SpiceJet boss said:
      “That is hypothetical.
      “One will have to look at what is finally on offer.
      “There is no doubt AI is a big brand and has great assets as well.”
      The unions’ threat to go on strike could not have come at a worse time.
      Countering a prolonged strike in Air India is the last thing Air India management or the government want.
      Today, the government finds itself between a rock and a hard place as far as Air India is concerned.

Tirthankar Ghosh

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